Overcapacity in the retail sector following the boom years up until 2007 meant there were not enough customers to go around once the economy hit the wall. The increasing prevalence of online shopping, particularly with overseas-based retailers given the high exchange rate, further eroded the market share of local firms. According to the NZIER’s Quarterly Survey of Business Opinion (QSBO), the profitability of merchants at the end of 2008 was squeezed harder than at any time since 1983.

The good news is that 2014 could be the best year for retailers for some time.

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http://www.tvhe.co.nz/wp-content/uploads/logo-for-enfold-photoshop.png00Infometricshttp://www.tvhe.co.nz/wp-content/uploads/logo-for-enfold-photoshop.pngInfometrics2014-02-21 08:00:082014-02-19 07:12:57Bright days ahead for New Zealand retailers?

If you hop over to the article on retail news I believe it goes through the fact that, after a long period of margin compression, we have already seen a year of margins recovering due to low cost pressures. With household demand rising (due to falling unemployment, rising incomes), retail firms will finally be in a position to lift prices and start using up some of the low cost spare capacity they have on hand.

The interesting thing in this article was that Gareth is noting that we may not see the “volume” of sales grow that exceptionally as a result, instead retail firms could well face the incentive to repair margins leading to stronger growth in the value of sales. This is also one of the main things you’d expect to see when inflation is picking up.

This may not sound like that big a deal, but the margin compression in the retail industry has been insane over the last five years – and the nature of the improvement, and structural adjustment in the industry, has been up in the air. The magnitude of lift in employment and an expected improvement in margins during 2014 is a more positive result than many believed we’d experience in the industry as recently as early 2013!

This is true – we aren’t as bad as Aussie, but it is still expensive. But the cost structure here is also much more expensive … this is one of the areas where internet retailing is a real structural shift.